Which of the following statements most accurately describes a financial effect of translation? A) Accounts receivable turnover ratios are affected. B) Depreciation is only distorted under the all-current method. C) Use of the temporal method may distort profit margins. D) The debt/equity ratio is higher under re-measurement if the foreign currency depreciates.
A because A/R (ending rate) and sales (average rate)
that was my guess yet it was wrong!!!
D?
bummer, today is not my day. I just took the first sample exam after work today and totally skewed it up … I hope I will do better on the actual exam.
maratikus Wrote: ------------------------------------------------------- > bummer, today is not my day. I just took the > first sample exam after work today and totally > skewed it up … I hope I will do better on the > actual exam. dont worry buddy from now onwards ur learning curve is gonna sky rocket believe me!!!
usif I haven’t talked to you in forever! good to find you back on AF.
hey ilvino!! how u doin buddy… good 2 see you again!!! how’s lvl2 working out for u …
I would guess C, since the temporal method will affect COGS.
it’s been a slow crawl toward the finish line… but i’m hanging in there. would love to hear that the answer to this one is D though.
LanceTX Wrote: ------------------------------------------------------- > I would guess C, since the temporal method will > affect COGS. You are right “sorry Ilvino, but still, hang on there!!!” LanceTX, can you elaborate please and tell me why “A” is wrong???
i’m an idiot.
I think its a poorly worded question (as a lot of them are), because I agree that A/R Turnover could be affected due to average rate being used for sales and current rate being used for A/R. That being said, I know that the CFAI books as well as schweser do put emphasis on knowing that the temporal method can distort pure IS statement ratios because of the effect on COGS.
If they wanted to get extremely anal, the reasoning could be because the actual formula for receivables turnover is Sales/“AVERAGE” receivables, which would then be translated using the AVERAGE rate for the period, thus matching the translation of sales. That would be SICK if they put something like that on the exam though.
My take is since they are referring to “Translation” they are asking you to address only the questions that relate to the all-current method, thus C and D do not apply. B is wrong, so by process of elimination A is correct (and it is my belief that the statement is correct as well).
nm.
D?